Saturday, 29 February 2020

A Financial and Energy expert, Alex Mould has exposed the NPP
led government over a ‘betrayal of patriotism’ to Ghana to favour a foreign entity for their ‘political and personal interests’ in the renegotiated Aker Energy
deal.

The former Boss of the Ghana National Petroleum Corporation
(GNPC), who had earlier on exposed the government on how bad the Aker deal was
and responded to by the Ministry of Energy (MoE) to justify why it gave
negotiated such a bad deal for Ghana, noted the response from Ministry of
Energy (MoE) clearly indicates their little or lack of knowledge in the
management of the petroleum industry. "

The Aker amendments are simply a multibillion-dollar betrayal of the national interest. No amount of spinning or personal attacks can mask that fact. The more MoE or other players try to defend it the deeper the hole they dig for themselves", he said.

The government of Ghana signed a deal with Aker Energy,
which bought the South Deepwater Tano (“SDWT”) and Deep Water Tano-Offshore
Cape Three Points (DWT-OCP) from Hess Oil and AGM Petroleum, under an already
negotiated Petroleum Agreements by the Ministry of Energy on behalf of the
country. Aker Energy then requested to amend the previous Agreements to reflect
current situation and interests. Aker Energy tendered their proposals to
Parliament through the Ministry of Energy but was thrown out by Parliament after
Civil Society rose against the proposals. Aker Energy and the MoE had to sit together to
amend the proposals and re-lay to Parliament. It was the amended Agreement
that, Mr Mould still found serious issues with aimed at short-changing Ghana to
favor Aker Energy.

“Government has no business playing ‘Father Christmas’ with
our oil resources”, the former Executive Director of Standard Chartered Bank stated
in a press statement he issued on Saturday. Adding that, “It is truly sad to
think that the Energy Ministry and for that matter, President Akufo-Addo’s
government genuinely has so little understanding of this industry.”

In the detailed press statement, Mr Mould made serious
revelations that must be of grave concerned to every patriotic citizen of the
country.

Read below the detailed exposé on the Aker deal:

GOVERNMENT HAS NO BUSINESS PLAYING FATHER CHRISTMAS WITH OUR
OIL RESOURCES – ALEX MOULD

I have read a response to my remarks about the Amendments
recently made to Aker’s South Deepwater Tano (“SDWT”) and Deep Water
Tano-Offshore Cape Three Points (DWT-OCP) Petroleum Agreements by the Ministry
of Energy (“MoE”). The statement is issued in name of the MoE but represents
the agenda not of our hard-working, professional civil servants but of the
political appointees superintending them.It is these politicians that must, and one day will bear full responsibility
for the Aker debacle and the many other scandals that have plagued the energy
sector in the last few years.So even
though my comments are formally directed to MoE they are intended really for
the political leadership – the ruling NPP.

MoE’s response seeks to do two things.

a.Clumsily deflect
attention away from a discussion of the Aker Amendments scandal with false and
pitiful allegations about my supposed role, as GNPC CEO, in over-pricing
Sankofa gas; and

b.Confuse
the public about the substance and impact of the Aker Amendments and deceive
the public into believing somehow that the Aker Amendments are good for
Ghana.

I respond as follows:

Sankofa Gas Pricing

First, let me address the fetish that NPP spokespersons are
making out of “take-or-pay” contracts. There is simply no way international oil
companies or the banks that finance them (or indeed any prudent investor) will
proceed with a multibillion-dollar investment without near-certainty about
future revenue inflows. Take-or-pay is simply to ensure that financiers are
paid whether product is sold or not.

Were there take or pay provisions in the Sankofa gas
development agreements?Of course, there
were.Ghana has a small, underdeveloped
gas market and increasingly weak gas sector policymaking.The direct off-takers of gas (GNPC and Ghana
Gas) are owned by the State and notoriously subject to “non-commercial”
Government interference.The ultimate
off-takers of gas (the power generating companies) are all very weak
financially (and in some cases operationally).No one will build a 7 billion-dollar gas production system to serve this
market without assurance that once the infrastructure is delivered the costs of
building and maintaining the plant will be repaid - even if the Offtaker for
whatever reason does not purchase the gas.

Second, let me clarify the position on gas-pricing. A
focused team of highly experienced and capable professionals within the energy
and finance sector (and not just Alex Mould), participated in the thorough
negotiations to achieve the US$9.8/MMBtu ceiling price; to ensure a reasonable
market Rate of Return (RoR) to the Contractor based on its estimates of
development cost, pay-out time, and (multiple) risks of a significant
deep-water development in a small and unproven market.GNPC was confident that it could lower
development costs in several ways including by funding various work packages
directly (GNPC has a lower cost of capital than Eni/Vitol) and rigorous project
oversight through the Joint Management Committee to ensure efficient and timely
execution.The Agreement therefore
specifically provides that all savings from Eni/Vitol’s original cost
projections would be used to reduce the gas price.Specifically, every 100 million dollars of
project cost saved would translate to a $0.55/MMBtu savings in gas price. We
succeeded in lowering the Sankofa development costs by approximately 691
million US Dollars.This entitled Ghana
to a gas-price reduction of approximately US$3.8/MMBtu.This means a new price (and a new price
floor) of less than $6/MMBtu.In other
words, the cost of gas to thermal power generators should have dropped by about
40% relieving the deep distress of the power sector!This price saving could have been passed on
to citizens in lower electricity tariffs or by investment in new power
generation capacity.

Unfortunately, this 40% reduction in the Sankofa gas price
through the prudent commercial structuring achieved by the GNPC team has NOT
materialised.Why is this the case?

The primary reason for this is that the Ministry under its
current leadership has simply dropped the ball!MoE has simply allowed Eni/Vitol to increase
its development costs and spend the 691 million US Dollars saved, on new wells
and other expenses that were not approved in the initial development plan.The NPP government has whittled away the
savings made from $3.8/MMBtu to only $0.4/MMBtu!Of course, what should have happened was that
the US$691million savings should first have been applied to reduce the gas
price before allowing an increase in development cost.

Why would the Energy Ministry behave in this way?The corollary of take-or-pay conditions is
that if the Contractor miscalculates the cost of development or mismanages the
execution of the development project those additional costs are for the Contractors
account and not for the account of the people of Ghana. Before these additional
costs can be recognised the Contractor must prove that they could not have been
avoided.

The NPP government has no business playing Father Christmas
to Contractors with our resources.It is
precisely this tendency that has led to the Aker travesty.WHETHER THIS IS DUE TO ARROGANT IGNORANCE AND
INCOMPETENCE, AN INFERIORITY COMPLEX IN THE FACE OF EUROPEANS, OR RECKLESS
CORRUPTION REMAINS TO BE SEEN.

The second reason is of course that Government has failed
without any reasonable justification to complete the pipelines required for
evacuating Sankofa gas so it can reach the power industry.

Rationalising the Aker Amendments

The NPP government wants Ghanaians to believe that the
transfer of billions and billions of dollars of national assets to Aker is good
for us.Ministry of Energy’s statement
offers several spurious arguments to back up this proposition.

First MoE claims that:

“The amendments to the Petroleum Agreements of Aker were to
provide regulatory certainty and incentives to support the realisation of
Aker’s Pecan Project and increase investment in the AGM Block respectively (my
emphasis).”

Let us examine this statement.

Regulatory Certainty.

As regards to providing “regulatory certainty” I note first
that a government does not achieve “regulatory certainty” by amending a single
petroleum agreement.It does so by
amending the Regulations that have industry-wide application. THIS WAS PURE
FAVOURITISM. However, it will lead to a stampede of IOCs looking for similar
treatment (and perhaps that is what MoE wants).

Second, there was never any regulatory uncertainty regarding
the Pecan development.Ghana’s approach
to managing PA Contract Areas has not changed since 1984 and is indeed pretty
standard throughout the international industry. GoG makes a large area
available for exploration to a Contractor over a (typically) seven-year period
broken into 3 sub-periods. To ensure that the Contractor deploys the resources
that enable it to explore diligently and optimise the chance of discoveries the
Contractor is required at agreed points to relinquish the parts of the Contract
Area that it is not willing to commit resources on. It can thenconcentrate on the areas it thinks are most
attractive.At the end of the 7 years,
the Contractor is allowed to retain only the areas covering the geological
structures in which they have made discoveries that they consider worth
developing.

Areas relinquished by
Contractors go back into the “pot” to enable Government to market it to other
oil companies.This ensures the most
thorough exploration of our potential.Let us be clear:

●Aker was
aware of these rules before it decided to acquire the Hess stake in the DWT-OCP
block.

●Aker knew
what stage of the Exploration Period Hess had reached.Aker knew Hess had made specific discoveries
and appraised those it thought worth appraising.Aker knew Hess had begun preparation of
development plans for the fields it considered worth developing.

●Aker knew
full well that the period for exploration of new prospects had ended.

●Aker knew
full well that to access additional acreage within the original contract area
it would have to either participate in a bid round for those areas or at best
seek a bilateral negotiation with MoE for them (possibly on different economic
terms from the original Hess PA).

The rules were clear; the problem was simply that Aker
sought special extra-legal treatment and MoE was willing to bend over backwards
to please Aker.

Incentives for Aker.

When it talks about “incentives to support the realisation
of Aker’s Pecan Project” Government is either unforgivably naïve or
disgracefully dishonest (or both).

There is little chance that Aker would walk away from the
DWT-OCP Block because the government refused to give it extraordinary
exploration rights.If Aker did walk
away it would simply lose its rights and would not be entitled to
compensation.If Aker did walk away,
Ghana’s industry would suffer minimal, if any, damage.Aker is not an Exxon or a Shell or a
Total.It does not have any special
oilfield development abilities that Ghana cannot do without. With proven
resources and a development plan in place, Ghana could easily find another
Contractor to come in and work with GNPC and Explorco on terms much more
favourable to Ghana than those provided for in the original DWT-OCP Agreement.
Any moderately seasoned negotiator would have called Aker's bluff
immediately.Indeed, Minister Boakye
Agyarko did precisely that (before he was removed from office).

The claim that the Amendments were intended to achieve an..
“.. increase [in] investment in the AGM Block.” again is also false.If the intention was to increase investment,
then the SDWT Amendment agreement would capture Aker’s enhanced work and
expenditure commitments. No such commitments are given in the Amendment
Agreements. Some of us are reliably informed Aker have promised the NPP
government $750m loan and only God knows what they have promised individuals
within the corridors of power. They have also promised all sorts of other
investments plus a $15bn spend in the two blocks based on additional wells and
new technologies. Aker may have made theses promises to senior Government
officials and “advisors” but none of these are captured in the Amendment
Agreement which is glaringly one-sided.

Positive Results.

Ministry of Energy then goes on to claim:

These incentives have already yielded positive results for
the country as AGM recently announced crude oil discoveries following an
accelerated drilling campaign.

MoE is claiming (with no shame) that amendments to a
Petroleum Agreement ratified on 22 December 2019 led to an oil discovery 6
months earlier in June 2019?!Even if
MoE is referring to the Amendments it presented to Parliament in April last
year the claim makes no sense.At the
time that Aker started drilling in June, Parliament had not ratified any
amendments.As I pointed out in my
original article, Parliament made its ratification of the April 2019 Amendments
conditional upon:

a.Restoration
of GNPC’s additional interest entitlement (which the Amendment proposed to drop
from 15% to 3%) to at least 10%; and

b.Resolution
of the dispute between Med Songhai Developers Ltd (the original Ghanaian
Project partner) over Aker’s attempts to push it out of the Project.

Parliament gave the Minister for Energy 6 months to report
back on the fulfilment of these conditions.So as at June 2019, no amendments had been passed (and for the record,
the Minister for Energy never reported back to Parliament as required).In any case, anybody who knows anything about
the O&G industry knows that drilling programmes are not put together in 30
days.They are planned months and years
ahead of execution.Aker had committed
to the May-June drilling campaign long before the Minister took his first round
of amendments to Parliament.

I should also point out that the 2 wells Aker drilled in
June were not in any way “accelerated”.They were wells due in the Initial Exploration Period under the original
PA.And since MoE is promising an
accelerated drilling campaign it should tell the public when the next well is
expected. Can MoE deny that Aker’s current programme does not include any new
drilling before the third quarter of 2021?Is this the “acceleration”?

Local content

MoE writes:

“Mr Mould claims that local content will be collapsed with
the PA Amendments.What he fails to
recognise is that it is the Minister who decides whether a PoD will be approved
or not, and part of the PoD is the local content plan.As a matter of fact, Aker has established a
new Company, Aker Ghana Investment Corporation (AGIC) to develop Ghanaian Tier
2 and Tier 3 suppliers.This is over and
beyond the local content terms in the original Agreement”.

Let us examine this argument.

Power to Approve Development Plans

First, does the Minister’s power of approval of a
Development Plan protect national local content aspirations?Let us look at what the Amendments say.

Clause 3.2 of the DWT-OCP Amendment Agreement amends Clause
8.16A of the PA to read:

Contractor shall have the right to amend, vary, or adjust the
Development Plan within 12 months of the final investment decision by A contractor without the consent of the Minister, provided that such amendment,
variation or adjustment shall not result in an increase in total capital
expenditure in respect of the Pecan field.Contractor shall promptly notify the Minister in writing of such
amendment, variation or adjustment.

In other words, Aker can rewrite the Development Plan
(including the local content provisions) without reference to the
Minister.It can (for example)
reallocate costs and contracts away from local to Norwegian subcontractors as
long as this does not increase overall costs.How then can MoE’s power to approve Development Plans be said to protect
local content?

(Incidentally, this surrender of policymaking power by a
minister is truly extraordinary.I
cannot imagine that Aker would enjoy such treatment in Norway. I cannot believe
that Aker would dare to suggest to the Ministry of Petroleum and Energy (“MPE”)
that it should be entitled to unilaterally override the terms of ministerial
approval.What then is the point of the
Minister approving a development plan? How could any minister propose such
self-emasculation to Parliament? How can we the people entrust the protection
of our national commercial interests to a minister who is so subservient to
private companies?)

To continue, let us look at Clause 5 of that Amendment
Agreement which amends Section 20(3) – 20(7) of the DWT-OCP Petroleum
Agreement.I will reproduce it in
full.The Amendment specifically states
that:

20.3The
procurement of goods works or services for petroleum operations shall be
within the work programme and budgets approved by the JMC.The selection of suppliers and the award of
contracts by Contractor under an approved work programme and budget shall not
be subject to approval by the JMC or governmental authority.

20.4Contractor
shall establish a transparent procurement process whereby the JMC, the
Petroleum Commission and the Minister are informed about the selection of
suppliers and award contractors.

20.5Contractor
shall be entitled to employ a split-contract model. Under the split-contract
model

a.if scope
of work consists of goods, works or services originating Ghana as determine by
Contractor (in-country scope) it will be awarded to a locally incorporated JV
company licensed by the Petroleum Commission that has the technical capability
to perform the scope of work; and

b.if the scope
of work consists of goods, works or services not originating in Ghana, as
determined by Contractor, (out-of-country scope) it will be awarded to a
foreign legal entity that has the technical capability to perform the scope of
work.

The split-contract model shall apply to inter alia goods,
works and services supplied for the FPSO, SPS, SURF, Drilling Rigs and Well
Services.

20.6Pursuant to
Article 26.2 the obligation on a contractor or subcontractor to make
contributions to the local content fund established under Act 919, does not
apply to Contractor, its Subcontractors, and suppliers for goods, works or
services, to be used solely and exclusively in the conduct of Petroleum
Operations.

20.7Subcontractors
shall have the same rights as Contractor specified in Article 26.2 to select
and award contracts and may use an out-of-country scope (with foreign legal
entities) and shall keep the Petroleum Commission and the Minister informed
about the selection of suppliers and award of contracts.

Could Aker’s control over procurement be any more
unfettered?Once a budget is approved, the decision as to who gets the contract is entirely within Aker’s
discretion.All they have to do is
designate a particular service “out-of-country scope” and it is gone.MoE can do nothing.It is important to understand that on average
field development costs in the wider Tano Basin (Jubilee, TEN, Gye
Nyame-Sankofa) have been between 5 billion US Dollars and 7 billion US Dollars.It is important also to understand that
unlike Tullow, Kosmos, Eni, Hess etc Aker is principally a service
company.It has a fleet of subsidiaries
that provide the services that most IOC’s have to contract out on an
arms-length basis.It is no surprise
that Aker seeks unfettered control over the award of contracts.The surprise is that the NPP Government is
happy to go along with this approach.

Aker Ghana Investment Company

What of the “Aker Ghana Investment Corporation” and its
development of “Tier 1 and Tier 2 suppliers”? My answer is that nobody will
love Ghana more than her citizens.MoE’s
reliance on AGIC reflects either naivety or betrayal.Where are Aker’s enhanced local content
obligations?Where is the contractual
framework for monitoring performance or sanctioning non-performance? Where is
all this spelt out?When did “Tier 1 and
Tier 2” typology become part of the language of our local content policy? There
is nothing in the amended PA that addresses these issues.Again, whereas Aker has tied Ghana up into
knots to protect its interests our Government is happy to rely on unenforceable
promises and goodwill?

The point should be made (and this probably deserves an
article on its own) that nothing in the non-binding sweet promises of Aker or
its AGIC compares with the kind of indigenisation and local content boom that
Ghana could have achieved through GNPC’s accelerated development strategy which
had Explorco and the SDWT PA at its centre.In Explorco, we had a national entity holding a 24% stake in the PA and
a Contractor committed to ceding operatorship and thus control of procurement
within 7 years.Explorco necessarily
would have invested in the growth of a fleet of Ghanaian service companies with
which it would have begun to step out into the West African, continental and
global market following a successful implementation of the SDWT project.Now MoE has taken Explorco’s 24% interest
away from it and handed this over to Aker in return for an additional 5%
carried interest for GNPC.IT IS TRULY
SAD TO THINK THAT THE ENERGY MINISTRY AND FOR THAT MATTER PRESIDENT
AKUFO-ADDO’S GOVERNMENT GENUINELY HAS SO LITTLE UNDERSTANDING OF THIS INDUSTRY
AND SO LITTLE STRATEGIC CAPACITY THAT IT BELIEVES A 5% CARRIED INTEREST IS MORE
VALUABLE THAN A 24% COMMERCIAL INTEREST THAT CARRIES OPERATING RIGHTS (AND
COMES UP WITH SOME VOODOO-ECONOMICS “BENEFIT-COST RATIO” METRIC TO BAMBOOZLE
THE PUBLIC.PERHAPS SOMETHING MORE
SINISTER HAS HAPPENED.ONE DAY WE WILL
KNOW.

Factual Errors

I will not deal here with the alleged “factual errors” cited
by MoE. This piece is long enough as it is. Also, many of the claims about
“factual errors” are addressed in the clauses of the Amendment Agreement that I
have quoted.

Ratification Process

There is however one issue that I would like to draw public
attention to. I am reliably informed
that on Thursday 19 December 2019, the Minister presented the Aker amendment
proposals to a joint sitting of the Parliamentary Committee on Finance and the
Parliamentary Committee on Mines & Energy.My information is that based on the Minister’s complete inability to
justify these radical and patently unpatriotic measures, the meeting roundly
rejected the proposals on a bipartisan basis and directed the Minister to go
and rethink the entire project.The
Committees did not even bother to schedule another sitting to consider the
proposed Amendments.Two days later, on
Saturday 21 December, without a further meeting of the two committees, a
“majority report” was submitted to the full house recommending ratification of
the Amendments. Around midnight on
Sunday 22 December, Parliament acting on this “majority report” ratified the
amendments. It would be interesting to understand what miracle MoE and Aker
worked in that 36 hour period to move Parliament (or rather the Majority) from
outright rejection to positive endorsement.

The Aker amendments are simply a multibillion-dollar
betrayal of the national interest.No
amount of spinning or personal attacks can mask that fact.The more MoE or other players try to defend
it the deeper the hole they dig for themselves.